The Trends At Young Poong Paper MfgLtd (KRX:006740) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Young Poong Paper MfgLtd (KRX:006740) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Young Poong Paper MfgLtd is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.077 = ₩12b ÷ (₩176b - ₩17b) (Based on the trailing twelve months to June 2020).

Therefore, Young Poong Paper MfgLtd has an ROCE of 7.7%. On its own that's a low return, but compared to the average of 5.4% generated by the Forestry industry, it's much better.

See our latest analysis for Young Poong Paper MfgLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Young Poong Paper MfgLtd's ROCE against it's prior returns. If you're interested in investigating Young Poong Paper MfgLtd's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Young Poong Paper MfgLtd, we didn't gain much confidence. Around one year ago the returns on capital were 12%, but since then they've fallen to 7.7%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

What We Can Learn From Young Poong Paper MfgLtd's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Young Poong Paper MfgLtd have fallen, meanwhile the business is employing more capital than it was one year ago. Yet despite these concerning fundamentals, the stock has performed strongly with a 62% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Young Poong Paper MfgLtd does come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those are potentially serious...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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